In a significant move to ease the financial burden on millions of Americans, the Biden Administration announced an initiative on Tuesday to remove an estimated $49 billion in medical debt from the credit reports of around 15 million people. The new rule, introduced by the Consumer Financial Protection Bureau (CFPB), aims to ban the inclusion of medical bills on credit reports and prevent lenders from using medical debt information when making lending decisions.
The CFPB stated that this rule would protect consumers from debt collectors using the credit reporting system to pressure individuals into paying bills they do not owe. The rule is also designed to address a significant issue: research by the CFPB found that medical debt has contributed to the denial of thousands of mortgage applications. The agency noted that medical debt is a poor indicator of a person’s ability to repay a loan.
The new regulation is expected to help more Americans secure loans, with an estimated 22,000 additional mortgages potentially being approved each year. The average person with medical debt on their credit report could see their credit score increase by about 20 points.
In 2022, a CFPB report revealed that medical debt accounted for more than half of all debt collections listed on consumer credit records. Following this, the three largest credit reporting agencies agreed to remove several forms of medical debt, including paid debts, unpaid debts under a year old, and debts under $500. However, the new federal rule takes this a step further by eliminating all medical debt from credit reports, providing much-needed relief for millions of Americans struggling with medical bills.
